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On the effect of credit rating announcements on sovereign bonds: International evidence

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  • Kenourgios, Dimitrios
  • Umar, Zaghum
  • Lemonidi, Paraskevi

Abstract

This paper examines the effect of credit rating announcements on ten-year sovereign bond yields for a selected sample of “traditional” and “new” global emerging countries as well as for developed countries that were hit mostly by the global financial crisis. By performing a panel regression analysis and several robustness tests, we highlight heterogeneous effects across different types of credit events, country groups, and rating agencies. The downgrades and negative outlooks by all agencies are more informative, increasing the bond yields of the group of all countries not only during the week of the announcement, but also one week after. On the contrary, the markets seem to discount imminent upgrade announcements one week earlier. On a credit rating agency level, an asymmetric pattern is observed since the informative role of each agency depends on the type and the horizon of the announcement. Only the positive outlooks by all agencies do not offer any effect across all markets and country groups. Finally, only the bond markets of BRICS and GIIPS react strongly to downgrades and negative outlooks.

Suggested Citation

  • Kenourgios, Dimitrios & Umar, Zaghum & Lemonidi, Paraskevi, 2020. "On the effect of credit rating announcements on sovereign bonds: International evidence," International Economics, Elsevier, vol. 163(C), pages 58-71.
  • Handle: RePEc:eee:inteco:v:163:y:2020:i:c:p:58-71
    DOI: 10.1016/j.inteco.2020.04.006
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    More about this item

    Keywords

    Sovereign credit ratings; Credit rating agencies; Bond yields; Emerging markets; Panel analysis;
    All these keywords.

    JEL classification:

    • C23 - Mathematical and Quantitative Methods - - Single Equation Models; Single Variables - - - Models with Panel Data; Spatio-temporal Models
    • F30 - International Economics - - International Finance - - - General
    • G15 - Financial Economics - - General Financial Markets - - - International Financial Markets
    • G24 - Financial Economics - - Financial Institutions and Services - - - Investment Banking; Venture Capital; Brokerage

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